Universal Life

Universal Life Insurance

Universal life insurance allows you to choose the amount of coverage, the premium you make, and potentially the cash value you build.  As long as you make your premium payments and you don’t withdraw or take a loan against the cash value, the interest rate your cash value earns doesn’t decrease. The policy may remain in force until the maturity date, which is generally age 95 or 100.  At the maturity date, coverage ends and you receive the cash value.  Because of the flexible nature of this type of policy, review this policy annually to make sure that it hasn’t changed. If it has, make the any necessary adjustments to allow the policy to continue to the maturity date.

Some universal life policies pay a guaranteed rate of return.  Others are variable universal life policies whose value depends on the performance of the sub accounts that an insured selects, which are invested in stocks, bonds, or other investments.  For this reason, agents who sell variable life insurance in Texas must have a federal securities license in addition to the standard state insurance license.  The rules and policy terms for flexible premium policies are complicated.  Talk to a life insurance professional to make sure you understand a policy before you buy it.

A universal life policy will allow you to change the amount you pay for the premium, the death benefit, or the cash value at any time.  Any adjustment you make will affect one or both of the other areas.  For example, increasing your payment will increase either your cash value, death benefit, or both.

Many universal life policies give you the option to lower your premium payments below the amount needed to pay the cost of the insurance.  Any shortfall in the payment versus the cost of insurance will be deducted from the cash value.  Be careful to review your policy if you make a lower premium payment because, if the cash value reaches zero, you will have to start paying the full amount of the cost of insurance or the policy will lapse. The company must send you an annual report with your cash value amount and how long the policy might last based on the cash value, cost of insurance, and interest rate that is credited to the cash value.

Some universal life policies have a secondary guarantee, or a no-lapse premium benefit.   The primary guarantee is the premium payment necessary to cover the cost of insurance.  If the primary guarantee isn’t enough, a secondary guarantee keeps the policy from lapsing even if the cash value is zero.


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